<PAGE>
SMITH BARNEY SERIES FUND
ANNUAL REPORT FOR
SYMPHONY
A TAX-DEFERRED VARIABLE ANNUITY
A centered 3 1/2 x 5 picture of a conductor
leading his orchestra at the symphony is
shown under the fund name listed at the top.
DECEMBER 31, 1994
<PAGE>
SMITH BARNEY SERIES FUND
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Dear Owner:
We are pleased to present to you the 1994 annual report for the Smith Barney
Series Fund which comprises the underlying investment options of the Symphony
Annuity.
A REVIEW OF THE MARKET IN 1994
For most investments, 1994 was both a difficult and an unusual year. There were
a number of positive forces in the financial markets last year, such as a strong
economy, rapidly growing corporate earnings, low inflation and a recovering
world economy. These beneficial factors were more than counter-balanced,
however, by a weak dollar and fears of rising inflation on a worldwide basis. In
the United States, inflation worries caused the Federal Reserve Board (the
"Fed") to raise the federal funds rate -- the rate banks charge each other for
overnight loans -- six times throughout the year.
The Fed implements monetary policy by raising or lowering key short-term
interest rates. When 1994 began, the Fed's monetary policy was stimulative. The
federal funds rate was at 3%, its lowest level in more than 20 years. These low
rates were intended to accelerate economic recovery from the 1991 recession.
Early in 1994, the Fed, believing that a stronger economy might lead to
inflation, raised the federal funds rate from 3.0% to 3.25%. That rate hike, and
another in March, caused heavy selling in the stock and bond markets, both in
the United States and abroad. By December, the federal funds rate had reached
5.5%.
The sell-off in stocks occurred in spite of extremely strong corporate earnings,
creating a stalemate in the equity markets with the popular averages producing
flat-to-slightly positive results for the year. While earnings helped push stock
prices higher at times during 1994, interest-rate worries largely overwhelmed
corporate-profit growth.
In February of 1995, the Fed raised the federal funds rate for the seventh time
in a year by one-half percentage point. Although the robust growth that closed
out 1994 has yet to translate into higher prices, the Fed views recent economic
indicators as pointing toward rising wages, and consequently, price increases.
The Fed's goal is to contain such increases and keep inflation subdued which may
require additional rate hikes in the first half of the year. We believe,
however, that the interest-rate cycle will turn at some point during the year
and that the stock market will benefit from the prospect of lower short-term
interest rates and continued, though perhaps somewhat slower, earnings growth.
Accordingly, we are cautiously optimistic that the capital markets in 1995 will
provide more attractive returns.
MONEY MARKET PORTFOLIO
Money market funds again presented investors with attractive and competitive
returns last year, especially when compared to other short-term investment
options. Throughout 1994, money market interest rates rose substantially,
propelled upward by the Fed's series of increases in short-term interest rates.
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In order to take advantage of rising interest rates, we kept the average
maturity of the Portfolio very short. We believe that moderate growth will
continue in 1995 which should cause the Fed to continue tightening its monetary
policy. For this reason, we will remain cautious in the near term and will
continue to maintain a short average maturity.
INTERMEDIATE HIGH GRADE PORTFOLIO
In 1994, there was no place to hide in the bond markets. With the Fed increasing
the federal funds rate by 250 basis points to 5.5%, the two-year Treasury yield
rose by 344 basis points and the 30-year Treasury yield rose by 153 basis points
to end the year at 7.66% and 7.88%, respectively. For the past year, the
Portfolio's total return was -3.05% compared with -2.92% for the Lehman Brothers
Aggregate Bond Index for the same period. During the first half of the year,
relative performance was supported by a shorter relative duration and an
overweighting in mortgages (approximately 20% of the Portfolio's total
holdings). During the second half, the Portfolio benefited from a barbell
maturity structure as the yield curve flattened significantly.
During the year we eliminated our mortgage positions and raised our corporate
sector holdings from 30% to 40% with purchases of industrial credits such as
Chrysler Financial Corporation, Federal Express Corporation and
Telecommunications, Inc., as we believe that the economic expansion will
continue to provide some support to the industrial sector. We also continued to
underweight domestic banks and utilities as we wait for more attractive
opportunities in these areas. While few opportunities remain for large gains in
the investment grade corporate bond market, we believe high quality names will
continue to provide good performance.
Looking forward, we are concerned that Fed tightening will continue to drive
short-term interest rates higher. We believe that the two- to 30-year maturities
may be fairly valued but retain the potential for some negative price movements.
Consistent with this outlook, emphasis is being placed on a barbell type
structure using highly liquid U.S. Treasuries and high quality corporate issues.
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
The Diversified Strategic Income Portfolio seeks high current income through
investments in a diversified portfolio of fixed-income securities. In a year
when extremely negative factors affected the bond market, our asset allocation
of 36% mortgage securities, 30% foreign bonds, 24% high yielding corporate bonds
and 10% in cash and other investments has been beneficial in minimizing net
asset value erosion. For the past year, the Portfolio produced a total return of
- - - - -2.81% compared to -2.92% for the Lehman Brothers Aggregate Bond Index during
the same period.
In the mortgage sector, we remain committed to Ginnie Mae pass-through
securities as a means of generating a higher income stream to offset the
principal risk associated with higher interest rates.
The high yield market generated break-even results in the fourth quarter. For
calendar year 1994, the high yield market outperformed the other fixed income
markets because of its relatively lower interest rate sensitivity, especially on
middle tier issues. Over the course of the quarter, the market continued to
offer reasonable value with yield spreads remaining over 400 basis points higher
than comparable maturity Treasury securities from less than 300 basis points in
January, 1994.
We maintained close to a fully invested position over the past quarter ended
December 31, 1994. Our heaviest concentrations were in a number of economically
sensitive sectors including forest products and paper, metals and mining, auto
and truck parts manufacturing, and general manufacturing. However, since year
end we have been methodically reducing our cyclical exposure in anticipation of
a potential economic slowdown. At the same time we have been increasing our
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exposure to traditional defensive sectors including cable TV, broadcasting,
media, and wireless telecommunications and paging. We continue to limit our
overall interest rate risk by limiting overall portfolio average call adjusted
maturities to the six- to seven-year range.
In the foreign investment area, European countries achieved a year of
higher-than-expected growth, particularly in the U.K., with the export sector
being very buoyant. This, coupled with political concerns in the U.S., helped
the more solid European currencies strengthen by over 10%. Fears of resurgent
inflation and concern over sharply rising public borrowing requirements pushed
longer yields up significantly over the period although shorter rates moved
little. During the coming months, we anticipate that this will reverse with
short rates rising by 1% to 2% while longer bonds stabilize.
EQUITY INCOME PORTFOLIO
This past year was a difficult one for utility investors as a combination of
rising interest rates and continuing concerns about industry deregulation caused
utility stocks to decline. The majority of the price decline was a result of
rising long-term interest rates reflecting a stronger economy. Forces of change
continue to impact all levels of the utility industry and are being motivated by
a combination of regulatory, political and consumer-driven efforts to lower
electricity prices. During this transition to a more competitive environment,
careful stock selection and diversification are essential, as not all companies
will be affected to the same degree.
The substantial period of underperformance of utilities compared with the
broad-based equity market appears to have ended. The near term competitive
pressures and slower growth rates are reflected in the prices of many individual
issues. During the last quarter of 1994, several utility industry analysts
increased their recommended portfolio weightings. We expect utilities to provide
competitive total returns during 1995, when compared to the overall equity
market. If market volatility increases, utility investors could outperform as
more defensive sectors attract investment capital.
Our portfolio strategy stresses attractive relative valuation and positive
fundamental analysis. This includes both our stock and bond weightings and
individual stock selection. Our current portfolio mix is 78% stocks (54%
utilities, 19% telecommunication and 5% gas), 18% bonds and 4% cash. Recent
additions to our holdings include: American Electric Power Inc., NIPSCO
Industries Inc., Enron Corporation and Panhandle Eastern Corporation. We have
sold or reduced our holdings of Dominion Resources of Virginia Inc. and
Allegheny Power Systems Inc. as we believe the electric utility sector to be
over-valued relative to the electric utility sector. The total return on your
investment during the past year was -10.20% compared with the Standard & Poor's
Daily Price Index of 500 Common Stocks ("S&P 500") which returned 1.31% for the
same period.
EQUITY INDEX PORTFOLIO
The objective of the Equity Index Portfolio is to give holders a return
approximately equal to that of the U.S. stock market, as measured by the S&P
500. The Portfolio is currently 87% invested in 486 stocks included in the S&P
500. The remaining 13% of the Portfolio consists of futures contracts on the
index. Over the period, the pre-expense performance of the Portfolio closely
tracked the index. Any material deviation from the index return is a result of
the fact that the Portfolio cannot hold certain stocks included in the index
because of legal restrictions. During the past fiscal year, the Portfolio
provided investors with a total return of 0.85%. By comparison, the S&P 500
produced a total return of 1.31% for the same period.
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GROWTH AND INCOME PORTFOLIO
This past year was a difficult one for the capital markets. Both stock and bond
returns in 1994 were well below their long-term averages. Both reacted
negatively as the Fed increased interest rates during the year. These Fed
tightenings, and the resulting fears of slower economic growth, have prompted a
subtle shift in stock market leadership towards the end of the year. Consumer
companies and other stocks considered to be consistent growers outperformed at
the expense of more cyclical issues.
The Growth and Income Portfolio concentrates on quality companies with growing
dividends. Although primarily an equity fund, it does hold several investment
grade corporate bonds. The Portfolio has a cyclical bent to its stock holdings,
with a concentration in manufacturing and industrial companies, and a
de-emphasis on more stable growth sectors. This combination penalized relative
performance in 1994, as the market favored lower quality and lower yielding
companies. Also, the underweighting in stable growth sectors penalized relative
performance towards year end. The total return on your investment during the
past year was -3.20% compared with 1.31% for the S&P 500 during the same period.
Within the Growth and Income Portfolio, we continue to emphasize economically
sensitive stocks. It is our belief that the longer-term outlook for industrial
and manufacturing stocks remains intact. These companies are world-class, and
costs are low while product quality is high. They are also benefiting from the
infrastructure investments by emerging market economies. We believe that
manufacturing and industrial stocks will be the premier performers in the '90s.
APPRECIATION PORTFOLIO
Although the investment background in 1994 was difficult, with our cautious
approach the Appreciation Portfolio continued to offer a relatively good haven
for investors. In a period marked by a series of negative events for the
financial markets, we believe our approach of investing in top-quality companies
with solid managements, excellent financials and attractive growth prospects is
a time-proven method for long-term growth of capital.
In our opinion, the weakness in the financial markets during the first half of
1994 was due more to the process of reversing the prior speculative excesses in
NASDAQ, emerging foreign markets, and the new issue market than to the upturn in
interest rates. Since midyear, however, interest rates have continued to rise,
partly because of a strong economy, but also due to an acceleration of de-
leveraging by "derivative players." This has caused the overall market to stall
and some areas of the market to go through full-scale washouts.
While the overall market did not provide good returns in 1994, there were some
good winners in the Portfolio, including Johnson & Johnson, Amoco Corporation,
American International Group Inc., Gillette Company and Coca-Cola Company.
However, part of the difficulty with the market was the rapidity with which
stocks would decline on either no news, or even on news which was positive but
did not exceed high expectations. Stocks such as Eastman Kodak Company, duPont
(E.I.) De Nemours & Company, Federal National Mortgage Corporation and Xerox
Corporation, which were big winners early in the year, saw much of their gains
erased in a matter of days. We also had our share of poor performers, primarily
in the auto and financial sectors. Despite good earnings results, the stocks of
companies in these sectors corrected with the rise in interest rates. We believe
that the fundamental outlook for these companies remains good and that the
stocks have overreacted on the downside. The total return on your investment
during the past year was -1.12% compared to 1.31% for the S&P 500 during the
same period.
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We enter 1995 with a more optimistic outlook than we had 12 months ago as many
of the conditions that concerned us in early 1994 have been resolved. The
Portfolio is well positioned for potential growth in what we expect to be a less
hostile environment this year. The recent Orange County, California, fiasco and
the unraveling of the Mexican market have proven once again that reaching for
unreasonable returns carries high risks. We will continue to manage the
Portfolio, not just for growth in good times, but also for preservation of
capital and low volatility in challenging times.
EMERGING GROWTH PORTFOLIO
The Emerging Growth Portfolio fell 7.48% during 1994, declining with a market
that was in a correction caused by rising interest rates. The NASDAQ Composite
Index fell 3.20% over the same period. The market correction more severely
impacted the high growth stocks that comprise the majority of assets in the
Portfolio, as many investors decided to take the large gains many of these
stocks had enjoyed over the previous three years. There was also a desire by
some investors to reduce perceived risk in a less hospitable investment climate.
The first half of the year was particularly difficult, with the Portfolio
declining 11.7%, followed by a rebound in the second half as the Portfolio
gained 4.8%. The rebound was not broadly based as technology stocks were the
only big winners during the rally.
The investment style employed by the Portfolio is a bottom-up approach which
focuses on stock selection rather than "market timing" or "sector rotation."
Risk is controlled by maintaining a broadly diversified portfolio and not making
big bets on any one sector or stock. Usually the Portfolio remains fully
invested, but cash levels have risen to approximately 10% during the year in
response to the difficult market. Our objective is to outperform the market by
picking the best stocks in each sector. This investment style is designed to
deliver consistent results.
Stocks are selected based on a company's potential to deliver upside earnings
surprises. To find such companies, we look for rising earnings estimates and
improving margins. Investments are made in the highest growth companies in each
sector that meet the screening criteria. In general, these will be smaller
companies with revenues less than $1 billion. Our biggest gain during the year
were all technology stocks (reflecting that group's leadership during the year)
including: Broderbund Software, Inc., LSI Logic Corporation, Tellabs, Inc.,
Andrew Corporation and Atmel Corporation.
We continue to remain optimistic about the prospect for small capitalization
stocks. These stocks are still selling at historically low valuation levels when
compared to larger capitalization stocks, and would benefit strongly from any
cut in the capital gains tax rate.
TOTAL RETURN PORTFOLIO
The Total Return Portfolio appreciated 7.40% in 1994. This return was below our
objective of a 12% annual return from capital gains, dividends, interest and
occasional premiums earned from the sale of options. The 1994 performance,
however, compared favorably with that of the major market indices. Last year, a
year which frustrated both bulls and bears alike, was a difficult one punctuated
by one of the worst bond markets since 1927. Higher interest rates often are a
strong "headwind" for equity values.
The Portfolio's investment adviser, Davis Skaggs Investment Management, believes
that we are near the end of the trend toward higher interest rates. Short-term
rates are nearing those at the long
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SMITH BARNEY SERIES FUND
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end, and it is the adviser's opinion that the worst of the news on the interest
rate front is over. We believe that one of the keys to the stock market is the
bond market, and we look for a slowing economy and somewhat lower interest rates
as 1995 unfolds.
The largest position in the Total Return Portfolio is in high quality real
estate investment trusts (also known as REITs). We believe that, on average,
REITs should increase their dividends by 7% this
year for a 15% total return. Our second largest sector is in interest rate
sensitive issues which were under pressure late in 1994 but should rebound
substantially if 1995 develops as we expect.
Energy stocks make up our third largest holding. As a weighting of the S&P 500,
energy is now at the lowest level in 15 years. We feel that continued world
business expansion will cause earnings of many energy companies to grow at rates
faster than that of the S&P 500 in 1995.
If one wanted to choose an "all-ugly" list of stocks, airlines would qualify. We
believe this sector may outperform the market by as much as a 2-to-1 ratio in
1995 and have chosen to participate in this sector by investing in convertible
securities. As a general rule, convertible stocks have less volatility than the
underlying shares but capture much of an upside. Other major positions include
selected drugs and pharmaceutical companies, leading technology, communications
and chemical companies.
Our long-term view of the market suggests that we need to lean toward the
industrial rather than the consumer side of the market. In 1994, our 104-year
financial assets-vs-hard assets chart gave its fourth buy signal since 1890, in
favor of "hard assets." Although this signal is often anticipatory, it indicates
to us that real estate, natural resource and commodity companies should make up
an important part of the Portfolio over the next three to five years.
For the fiscal year ended December 31, 1994, the total return on the Total
Return Portfolio was approximately 7.40% compared to 1.31% for the S&P 500. Our
current cash position is about 29% of assets. These assets will be committed as
stock prices for selected issues reach our targets.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio produced a total return of - 8.36% in 1994,
which compares unfavorably with the 8.06% increase of the Europe, Australia and
Far East Index ("EAFE Index"). We believe our 1994 decline and underperformance
of the index was attributable to:
*A relative underweighted position (10.5% at year-end) in yen-
based Japanese stocks which dominated the EAFE Index. The yen
appreciated substantially versus the dollar during 1994.
*Rising global interest rates, which provided an attractive
alternative to equities, and which can cause a price-earnings
multiple compression on growth stocks.
*Sharp declines in selected markets, such as Hong Kong and Mexico,
due to local macroeconomic and political developments.
*Our policy of being virtually fully invested at all times.
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The near-term outlook for the international equity markets has been clouded, not
only by the Mexican peso devaluation, which has caused sympathetic downward
pressure on other Latin markets, but also by the expectation of rising
short-term U.S. interest rates.
Nevertheless, corporate earnings growth continues to be good to excellent and
that gives us continued cause for optimism over the next 12 to 24 months. Many
non-U.S. companies are restructuring, and the global economic rebound is
providing cash for renewed merger and acquisition activity (i.e., in the
pharmaceutical and food sectors). If the U.S. economy begins to slow, as some
forecasters are now envisaging, and concerns of recession emerge, we believe the
superior growth of the non-U.S. markets will again merit attention.
We are keeping with our long-term approach of diversified growth stock investing
and have not made any major changes in holdings over the past quarter. Latin
American holdings comprised 14% of the Portfolio of which, due to price
declines, Mexican holdings comprise less than 5% of the Portfolio. We have
reexamined all our Mexican positions for potential problems in light of the
devaluation. The geographic allocation of the Portfolio is now 35% in the
Pacific Rim, 46% in Europe and 5% in cash. Subsequent to year-end, our Pacific
Rim holdings suffered losses due to macroeconomic conditions. However, we
believe this decline was only temporary and, therefore, have not significantly
adjusted the Portfolio's holdings in the Pacific Rim.
IN CONCLUSION
The table below summarizes the performance of the Smith Barney Series Fund for
1994.
<TABLE>
<S> <C>
1994 PERFORMANCE SUMMARY
PORTFOLIO TOTAL RETURN
------------------------------------------------------------------ ------------
Money Market...................................................... 3.56%
Intermediate High Grade........................................... -3.05%
Diversified Strategic Income...................................... -2.81%
Equity Income..................................................... -10.20%
Equity Index...................................................... 0.85%
Growth & Income................................................... -3.20%
Appreciation...................................................... -1.12%
Emerging Growth................................................... -7.48%
Total Return...................................................... 7.40%
International Equity.............................................. -8.36%
</TABLE>
We want to thank you for your participation in the Smith Barney Series Fund and
pledge out best efforts to achieve competitive returns in changing market and
economic environments. We look forward to meeting your financial needs in the
years to come.
Sincerely,
HEATH B. MCLENDON
Chairman of the Board
and Investment Officer
February 13, 1995
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PERFORMANCE COMPARISON - INTERMEDIATE HIGH GRADE PORTFOLIO AS OF 12/31/94
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------
with Waiver without Waiver
<S> <C> <C>
Year
Ended
12/31/94 (3.05)% (3.24)%
Inception
10/16/91
through
12/31/94 3.85% 2.59%
</TABLE>
The chart to the right compares the growth in value of a hypothetical $10,000
investment in Intermediate High Grade Portfolio on October 16, 1991 (inception)
with that of a similar investment in the Lehman Brothers Aggregate Bond Index.
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Portfolio has been used. Figures for the
Lehman Brothers Aggregate Bond Index, an unmanaged index, are composed of the
Lehman Intermediate Government/Corporate Bond Index and the Mortgage-Backed
Securities Index and includes treasury issues, agency issues, corporate bond
issues and mortgage-backed securities.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Series
Fund--Intermediate Grade Fund shares on October 16, 1991 through December 31,
1994 as compared with the growth of a $10,000 investment in the Lehman Brothers
Aggregate Bond Index. The plot points used to draw the line graph were as
follows:
<TABLE>
<CAPTION>
Growth of $10,000
Growth of $10,000 Investment in the
Invested in shares Lehman Brothers
Month Ended of the Fund Aggregate Bond Index
<S> <C> <C>
10/16/91 $10,000 --
10/91 $10,000 $10,000
11/91 $10,030 $10,092
12/91 $10,240 $10,392
03/92 $10,085 $10,259
06/92 $10,407 $10,674
09/92 $10,844 $11,132
12/92 $10,781 $11,161
03/93 $11,160 $11,623
06/93 $11,352 $11,932
09/93 $11,631 $12,243
12/93 $11,643 $12,250
3/94 $11,411 $11,898
6/94 $11,185 $11,775
9/94 $11,218 $11,847
12/94 $11,287 $11,892
</TABLE>
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The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost. The Portfolio waived fees and reimbursed expenses
from October 16, 1991 to the present. A shareholder's actual return for periods
during which waivers and reimbursements were in effect would be the higher of
the two numbers shown.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- - - - --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - DIVERSIFIED STRATEGIC INCOME PORTFOLIO AS OF 12/31/94
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------
with Waiver without Waiver
<S> <C> <C>
Year
Ended
12/31/94 (2.81)% N/A
Inception
10/16/91
through
12/31/94 3.74% 3.52%
</TABLE>
The chart to the right compares the growth in value of a hypothetical $10,000
investment in Diversified Strategic Income Portfolio on October 16, 1991
(inception) with that of a similar investment in the Lehman Brothers Aggregate
Bond Index. Index information is available at month-end only; therefore, the
closest month-end to inception date of the Portfolio has been used. Figures for
the Lehman Brothers Aggregate Bond Index, an unmanaged index, are composed of
the Lehman Intermediate Government/Corporate Bond Index and the Mortgage-Backed
Securities Index and includes treasury issues, agency issues, corporate bond
issues and mortgage-backed securities.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Series
Fund--Diversified Strategic Income Fund shares on October 16, 1991 through
December 31, 1994 as compared with the growth of a $10,000 investment in the
Lehman Brothers Aggregate Bond Index. The plot points used to draw the line
graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000
Growth of $10,000 Investment in the
Invested in shares Lehman Brothers
Month Ended of the Fund Aggregate Bond Index
<S> <C> <C>
10/16/91 $10,000 --
10/91 $10,000 $10,000
11/91 $10,020 $10,092
12/91 $10,140 $10,392
03/92 $ 9,930 $10,259
06/92 $10,270 $10,674
09/92 $10,354 $11,132
12/92 $10,284 $11,161
03/93 $10,749 $11,623
06/93 $11,027 $11,932
09/93 $11,287 $12,243
12/93 $11,576 $12,250
3/94 $11,310 $11,898
6/94 $11,208 $11,775
9/94 $11,247 $11,847
12/94 $11,251 $11,892
</TABLE>
- - - - --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost. The Portfolio waived fees and reimbursed expenses
from October 16, 1991 to December 31, 1993. A shareholder's actual return for
periods during which waivers and reimbursements were in effect would be the
higher of the two numbers shown.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
8
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PERFORMANCE COMPARISON - EQUITY INCOME PORTFOLIO AS OF 12/31/94
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------
with Waiver without Waiver
<S> <C> <C>
Year
Ended
12/31/94 (10.20)% N/A
Inception
10/16/91
through
12/31/94 3.88% 3.72%
</TABLE>
The chart to the right compares the growth in value of a hypothetical $10,000
investment in Equity Income Portfolio on October 16, 1991 (inception) with that
of a similar investment in the Variable Annuity Lipper Equity Income Funds Peer
Group Average and S&P 500 Stock Index. Index information is available at
month-end only; therefore, the closest month-end to inception date of the
Portfolio has been used. The S&P 500 Stock Index is an unmanaged index composed
of 500 widely held common stocks listed on the New York Stock Exchange, American
Stock Exchange and over-the-counter market.
The Variable Annuity Lipper Equity Income Funds Peer Group Average is composed
of 41 equity income variable annuities.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Series Fund--Equity
Income Fund shares on October 16, 1991 through December 31, 1994 as compared
with the growth of a $10,000 investment in Standard & Poor's 500 Index and
Variable Annuity Lipper Equity Income Funds Peer Group Index. The plot points
used to draw the line graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000
Investment in the
Growth of $10,000 Variable Annuity
Growth of $10,000 Investment in the Lipper Equity Income
Invested in shares Standard & Poor's Funds Peer Group
Month Ended of the Fund 500 Index Index
<S> <C> <C> <C>
10/16/91 $10,000 -- --
10/91 $10,000 $10,000 $10,000
11/91 $10,020 $ 9,598 $ 9,698
12/91 $10,200 $10,694 $10,434
03/92 $ 9,957 $10,424 $10,392
06/92 $10,522 $10,622 $10,618
09/92 $11,124 $10,957 $10,918
12/92 $11,397 $11,508 $11,463
03/93 $12,268 $12,011 $12,298
06/93 $12,545 $12,068 $12,556
09/93 $13,080 $12,379 $13,105
12/93 $12,583 $12,667 $13,170
3/94 $11,554 $12,188 $12,753
6/94 $11,144 $12,238 $12,877
9/94 $11,163 $11,836 $13,445
12/94 $11,300 $12,833 $13,185
</TABLE>
- - - - --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost. The Portfolio waived fees and reimbursed expenses
from October 16, 1991 to December 31, 1992. A shareholder's actual return for
periods during which waivers and reimbursements were in effect would be the
higher of the two numbers shown.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- - - - --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - GROWTH & INCOME PORTFOLIO AS OF 12/31/94
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------
with Waiver without Waiver
<S> <C> <C>
Year
Ended
12/31/94 (3.20)% N/A
Inception
10/16/91
through
12/31/94 4.77% 4.31%
</TABLE>
The chart to the right compares the growth in value of a hypothetical $10,000
investment in Growth & Income Portfolio on October 16, 1991 (inception) with
that of a similar investment in the Variable Annuity Lipper Growth & Income
Funds Peer Group Average and S&P 500 Stock Index. Index information is available
at month-end only; therefore, the closest month-end to inception date of the
Portfolio has been used. The S&P 500 Stock Index is an unmanaged index composed
of 500 widely held common stocks listed on the New York Stock Exchange, American
Stock Exchange and over-the-counter market.
The Variable Annuity Lipper Growth & Income Funds Peer Group Average is composed
of 40 growth and income variable annuities.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Series Fund--Growth &
Income Fund shares on October 16, 1991 through December 31, 1994 as compared
with the growth of a $10,000 investment in Standard & Poor's 500 Index and
Variable Annuity Lipper Growth & Income Funds Peer Group Index. The plot points
used to draw the line graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000
Investment in the
Growth of $10,000 Variable Annuity
Growth of $10,000 Investment in the Lipper Growth &
Invested in shares Standard & Poor's Income Funds Peer
Month Ended of the Fund 500 Index Group Index
<S> <C> <C> <C>
10/16/91 $10,000 -- --
10/91 $10,000 $10,000 $10,000
11/91 $ 9,720 $ 9,598 $ 9,614
12/91 $10,140 $10,694 $10,521
03/92 $10,070 $10,424 $10,513
06/92 $10,261 $10,622 $10,520
09/92 $10,556 $10,957 $10,827
12/92 $10,995 $11,508 $11,448
03/93 $11,325 $12,011 $11,959
06/93 $11,315 $12,068 $12,086
09/93 $11,618 $12,379 $12,532
12/93 $11,995 $12,667 $12,840
3/94 $11,502 $12,188 $12,442
6/94 $11,452 $12,238 $12,403
9/94 $11,794 $11,836 $12,991
12/94 $11,611 $12,833 $12,804
</TABLE>
- - - - --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost. The Portfolio waived fees and reimbursed expenses
from October 16, 1991 to December 31, 1993. A shareholder's actual return for
periods during which waivers and reimbursements were in effect would be the
higher of the two numbers shown.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
9
<PAGE>
- - - - --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - APPRECIATION PORTFOLIO AS OF 12/31/94
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------
with Waiver without Waiver
<S> <C> <C>
Year
Ended
12/31/94 (1.12)% N/A
Inception
10/16/91
through
12/31/94 5.27% 5.21%
</TABLE>
The chart to the right compares the growth in value of a hypothetical $10,000
investment in Appreciation Portfolio on October 16, 1991 (inception) with that
of a similar investment in the S&P 500 Stock Index. Index information is
available at month-end only; therefore, the closest month-end to inception date
of the portfolio has been used. The S&P 500 Stock Index is an unmanaged index
composed of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange and over-the-counter market.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Series
Fund--Appreciation Fund shares on October 16, 1991 through December 31, 1994 as
compared with the growth of a $10,000 investment in Standard & Poor's 500 Index.
The plot points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000
Growth of $10,000 Investment in the
Invested in shares Standard & Poor's
Month Ended of the Fund 500 Index
<S> <C> <C>
10/16/91 $10,000 --
10/91 $10,000 $10,000
11/91 $ 9,740 $ 9,598
12/91 $10,490 $10,694
03/92 $10,270 $10,424
06/92 $10,260 $10,622
09/92 $10,590 $10,957
12/92 $11,133 $11,508
03/93 $11,413 $12,011
06/93 $11,330 $12,068
09/93 $11,583 $12,379
12/93 $11,926 $12,667
3/94 $11,532 $12,188
6/94 $11,618 $12,238
9/94 $11,853 $11,836
12/94 $11,792 $12,833
</TABLE>
- - - - --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost. The Portfolio waived fees and reimbursed expenses
from October 16, 1991 to December 31, 1992. A shareholder's actual return for
periods during which waivers and reimbursements were in effect would be the
higher of the two numbers shown.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
10
<PAGE>
- - - - --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - EMERGING GROWTH PORTFOLIO AS OF 12/31/94
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------
with Waiver without Waiver
<S> <C> <C>
Year
Ended
12/31/94 (7.48)% (7.84)%
Inception
12/3/93
through
12/31/94 (3.43)% (4.33)%
</TABLE>
The chart to the right compares the growth in value of a hypothetical $10,000
investment in Emerging Growth Portfolio on December 3, 1993 (inception) with
that of a similar investment in the NASDAQ Composite Index. Index information is
available at month-end only; therefore, the closest month-end to inception date
of the Portfolio has been used. NASDAQ Composite Index is a market
capitalization price-only index that tracks the performance of domestic common
stocks traded on the regular NASDAQ market as well as foreign common stocks and
ADRs traded on the National Market System.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Series Fund--Emerging
Growth Fund shares on December 3, 1993 through December 31, 1994 as compared
with the growth of a $10,000 investment in the NASDAQ Composite Index. The plot
points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000
Growth of $10,000 Investment in the
Invested in shares NASDAQ Composite
Month Ended of the Fund Index
<S> <C> <C>
11/93 -- $10,000
12/03/93 $10,000 --
12/93 $10,410 $10,297
3/94 $ 9,920 $ 9,855
6/94 $ 9,191 $ 9,357
9/94 $ 9,771 $10,130
12/94 $ 9,631 $ 9,968
</TABLE>
- - - - --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost. The Portfolio waived fees and reimbursed expenses
from December 3, 1993 to the present. A shareholder's actual return for periods
during which waivers and reimbursements were in effect would be the higher of
the two numbers shown.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
11
<PAGE>
- - - - --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - TOTAL RETURN PORTFOLIO AS OF 12/31/94
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------
with without
Waiver Waiver
<S> <C> <C>
Year
Ended
12/31/94 7.40% 7.30%
Inception
12/3/93
through
12/31/94 9.82% 9.53%
</TABLE>
The chart to the right compares the growth in value of a hypothetical $10,000
investment in Total Return Portfolio on December 3, 1993 (inception) with that
of a similar investment in the Standard & Poor's 500. Index information is
available at month-end only; therefore, the closest month-end to inception date
of the portfolio has been used. The S&P 500 Stock Index is an unmanaged index
composed of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange, and over-the-counter market.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Series Fund--Total
Return Fund shares on December 3, 1993 through December 31, 1994 as compared
with the growth of a $10,000 investment in Standard & Poor's 500 Index. The plot
points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000
Growth of $10,000 Investment in the
Invested in shares Standard & Poor's
Month Ended of the Fund 500 Index
<S> <C> <C>
11/93 -- $10,000
12/03/93 $10,000 --
12/93 $10,300 $10,121
3/94 $10,514 $ 9,739
6/94 $11,197 $ 9,778
9/94 $11,248 $10,256
12/94 $11,062 $10,253
</TABLE>
- - - - --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost. The Portfolio waived fees and reimbursed expenses
from December 3, 1993 to the present. A shareholder's actual return for periods
during which waivers and reimbursements were in effect would be the higher of
the two numbers shown.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- - - - --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INTERNATIONAL EQUITY PORTFOLIO AS OF 12/31/94
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------
with Waiver without Waiver
<S> <C> <C>
Year
Ended
12/31/94 (8.36)% (8.51)%
Inception
12/3/93
through
12/31/94 (7.35)% (7.68)%
</TABLE>
The chart to the right compares the growth in value of a hypothetical $10,000
investment in International Equity Portfolio on December 3, 1993 (inception)
with that of a similar investment in the Morgan Stanley EAFE Index. Index
information is available at month-end only; therefore, the closest month-end to
inception date of the portfolio has been used. The Morgan Stanley EAFE Index is
a composite portfolio consisting of equity total returns for the countries of
Europe, Australia, New Zealand and countries in the Far East, weighted based on
each country's gross domestic product.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Series
Fund--International Equity Fund shares on December 3, 1993 through December 31,
1994 as compared with the growth of a $10,000 investment in Morgan Stanley EAFE
Index. The plot points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000
Growth of $10,000 Investment in the
Invested in shares Morgan Stanley
Month Ended of the Fund EAFE Index
<S> <C> <C>
11/93 -- $10,000
12/03/93 $10,000 --
12/93 $10,050 $10,724
3/94 $ 9,370 $11,105
6/94 $ 9,280 $11,682
9/94 $ 9,960 $11,700
12/94 $ 9,210 $11,589
</TABLE>
- - - - --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost. The Portfolio waived fees and reimbursed expenses
from December 3, 1993 to the present. A shareholder's actual return for periods
during which waivers and reimbursements were in effect would be the higher of
the two numbers shown.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
12
<PAGE>
SMITH BARNEY SERIES FUND
- - - - --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
On April 29, 1994, a special meeting of the shareholders of the Fund's
Diversified Strategic Income Portfolio (the "Portfolio") was held for the
purpose of voting on the following matter:
(1) To approve a new sub-investment advisory agreement between the Fund, on
behalf of the Portfolio, and Smith Barney Global Capital Management, Inc.,
containing substantially the same terms and conditions as the Fund's then
existing sub-investment advisory agreement.
The results of the vote on the Proposal were as follows:
<TABLE>
<CAPTION>
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
----------- ------------- ----------- -----------
<S> <C> <C> <C>
Affirmative 4,275,532.498 88.903% 88.903%
Against 170,534.607 3.546% 3.546%
Abstain 363,143.492 7.551% 7.551%
------------- ----------- -----------
Total 4,809,210.597 100.000% 100.000%
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
82
<PAGE>
This report is submitted for the general
information of the owners of the
Symphony Annuity which invests in the
Smith Barney Series Fund. It is not
authorized for distribution to
prospective investors unless accompanied
or preceded by an effective Prospectus
for the Fund, which contains information
concerning the Fund's investment
policies, fees and expenses, as well as
other pertinent information.
SYMPHONY
investments are sponsored and managed
by:
Smith Barney Inc.
and subsidiaries
SYMPHONY
is underwritten, issued and serviced by:
IDS Life Insurance Company and
IDS Life Insurance Company of New York
S-6225 F(2/95)
